Asia-Pacific CEOs are confident to weather through the looming ‘mild and short’ recession
PETALING JAYA, 17 October 2022 – A global survey conducted by KPMG International reveals that 63 percent of CEOs in the Asia-Pacific region (ASPAC) anticipate a recession over the next 12 months – but more than half (55 percent) expect it to be mild and short while 58 percent have already taken precautionary measures to weather the upcoming turbulence.
The survey also revealed that 73 percent of CEOs are confident in the resilience of their company in weathering through the next six months, with a similar level of confidence (71 percent) in their country’s resilience. On a wider scale, 65 percent of CEOs are confident in the growth prospects of the global economy over the next three years.
In response to the anticipated recession, over the next 6 months, CEOs plan to implement a hiring freeze (44 percent), manage cost by increasing price (43 percent) and reduce profit margins (40 percent). More worryingly, 29 percent of CEOs in ASPAC have reportedly paused or reconsidered their existing environment, social and governance (ESG) efforts while 47 percent plan to do so over the coming months.
Datuk Johan Idris, Managing Partner of KPMG in Malaysia, observed this to be a risky approach, adding, “As governments in Malaysia and around the world are battling higher inflation with large interest rate increases, there is increasing concern of a global liquidity crisis. This will mean companies will find it increasingly difficult to refinance or rollover debt as banks, in anticipation of a recession, become more cautious in their lending.
“Moreover, as liquidity gets tighter and a recession becomes more certain, those industries that are already out of favor with banks due to their ESG priorities, may find any form of new financing difficult, thereby triggering capital issues that will require careful planning.”
In this context, CEOs should be thinking about the extent to which they have near term refinancing horizons and how they might need to navigate both higher pricing and have potentially difficult discussions with their financiers. There is also the likelihood that CEOs may need to look for alternate sources of capital to improve their chances of refinancing.
Not surprisingly, 70 percent of CEOs see the availability of capital for new investments (and lack thereof) will impact their organization. Despite that, 61 percent cited that they are placing more capital investment in buying new technology, while 65 percent consider new partnerships will be critical to continuing their pace of digital transformation.
On top of managing pandemic fatigue, CEOs are also managing supply chain risks as an area of focus over the next three years. KPMG’s survey found that in anticipation of the recession, 45 percent of CEOs plan to diversify their supply chain while 40 percent aim to transfer overseas operations locally or in-house.
Guy Edwards, Executive Director of Restructuring at KPMG in Malaysia, who has worked with clients in the public and private sectors through previous global recessions and the Asian Financial Crisis, knows all too well the knock-on effects of supply chain issues on a company’s financial performance.
“The largest impacts often result from the demise of long-term suppliers that are often overlooked as critical to your supply chain. Hence, supply chain diversification and supplier risk assessment become critical in times of recession. The failure of suppliers of critical components, often without notice, can cause significant damage both financially and reputationally. CEOs should be looking at the best ways to manage their exposure whether it is through sourcing other suppliers, increasing inventory levels, or reviewing supplier financial viability,” Guy advised.
Other findings from the survey:
- CEOs in ASPAC cite the top three risks to business growth to be emerging/disruptive technology, regulatory concerns, and environmental/climate change.
- Stakeholder pressure continues to influence accountability in ESG; 71 percent of CEOs see significant stakeholder demand for increased reporting and transparency on ESG issues. Yet, 43% struggle to articulate a compelling ESG story.
- Cyber security has dropped from the top 5 risks to growth over the past year, with only 7 percent of CEOs naming it as their top risk. However, the cyber environment is evolving with 75 percent saying their organization views information security as a strategic function and as a potential source of competitive advantage.
- CEOs ranked employee value proposition to attract and retain talent as the top operational priority to achieving their 3-year growth objectives.
- 70 percent of CEOs agree that the proposed global minimum tax regime is a significant concern to their organization’s goals on growth.
To view additional information about the survey please visit www.kpmg.com.my/CEOoutlook